Let's say I like my kids and want to be nice to them (they are teenagers, so this is sometimes a challenge). Both work and earn a couple thousand a year. I was thinking of funding an IRA for them.

What do you think about putting money in an IRA for a 17 or 18 year old? Yes, I realize they could pull the cash out the next day, pay the tax and frolic with the money, but when I think about money compounding for 50 years I go nuts!

As someone who´s father encouraged him to start an IRA at the age of 16 I think it´s a great idea and a good way to get your kids to start thinking about retirement planning, something that is probably furthest from their minds right now.

Instead of fully funding their IRA´s, one recommnedation would be to mimmick a co-funded retirement scheme, whereby you ´match´ their contributions 1:1, 10:1, 25:1. This way they will be contributing some of their own funds towards retirement and will become ´vested´ in the process. Hopefully they will derive the same thrill from compounding that you do.

Preston - I like the matching idea. I use to do that when they were very young and we are talking pennies, nickles and quarters. I got away from it over the years. Good idea. It helps develop the investment habit.

I currently kick back their earnings from savings and two stock dividends with cash-in-the-palm. I don't actually pull the money from the account, it comes from my pocket but it gives them periodic feedback that the money just isn't going into a black hole. Its pretty cool when they starting asking, "shouldn't I be getting another check soon"?

Put it into a Roth IRA. That way it compounds tax-free in the worst case that they do pull it out at some point.

While the regular contributions can be pulled out at any time without tax or penalty, certain rules have to be followed to be able to pull out the earnings without tax or penalty.

Which -- if they use it for home purchase ...

There are certain rules about pulling out money for a "first time home purchase" (if one were not yet 59.5 years old and had a Roth IRA for at least 5 years), but that exempts the earnings from penalty, but one would pay income taxes on the earnings.

Actually I like the idea of a penalty. I want the investment to grow. Sure a house is usually a good investment, but if they want to save for a home they can always move back home (I enjoy my daughters...even in this teenage stage...go figure!) and bank the money.

When my wife and I got married we moved into my parents basement for a year. With two nice incomes, no rent and no kids we packed it away. Our first house was modest and with a large down payment we were able base our monthly payment on just my income. Her income was play money and play we did for 6 years before our first kid. We were able to have fun, stay out of debt and save money. After 25 years of marriage we are still following the same formula and have been blessed beyond my hopes. Despite this I still worry about retirement. I don't want my girls to have this worry.